Senate Raises 2019 Budget by N90.3bn Despite Fiscal Challenges

The Senate on Tuesday demonstrated Nigeria’s penchant for ignoring fiscal realities as it passed the 2019 budget, raising it by over N90.3 billion to N8.916 trillion, from an earlier draft of N8.826 trillion that was submitted by President Muhammadu Buhari five months ago.

This is coming at a time the country’s revenue from oil, its major foreign exchange earner, has remained below projections, plunging 57.4 percent to $18 billion in 2018, from as high as $42.7 billion in 2014, according to data obtained from the Central Bank of Nigeria’s quarterly reports.

“The upward adjustment to the budget estimates by the legislative arm will be a source of concern to the executive given the weak fiscal position of the government,” Gbolahan Ologunro, an equity research analyst at Lagos-based CSL Stockbrokers, said.

“More importantly, it is coming at a time when debt servicing to revenue ratio is elevated, implying that there could be further increase in the level of government borrowing in the current fiscal year, with its attendant impact on further exacerbating the weak fiscal buffers of the government,” Ologunro noted.

The increase in the budget figures, according to Danjuma Goje, chairman, Senate Committee on Appropriations, arose from the provision of severance benefits for outgoing lawmakers and legislative aides, induction/orientation and the inauguration of lawmakers-elect in the Ninth Assembly, as well as more provision for security agencies to deal with unforeseen security challenges in the country.

Highlights of the 2019 budget as approved by the Senate include capital expenditure of N2.094 trillion, recurrent expenditure of N4.055 trillion, statutory transfers of N502 billion, fiscal deficit of N1.908 trillion, special intervention of N500 billion, and deficit to GDP of 1.37 percent.

The budget report also revealed that lawmakers approved the sum of N23.7 billion as severance gratuity for outgoing legislators and allowances for incoming legislators and legislative aides.

In the same token, the deficit was increased from N1.86 trillion contained in the President’s proposal to N1.908 trillion.

The Appropriations Committee adopted the Medium Term Expenditure Framework/Fiscal Strategy Paper (MTEF/FSP) with the following assumptions: 2.3 million barrels daily oil production, a benchmark oil price of $60 per barrel, and exchange rate of N305/$1.

In passing the MTEF/FSP, the Senate also approved a GDP growth rate of 3.0 percent and inflation growth rate of 9.98 percent.

While Africa’s biggest oil producer has overtime battled with closing up the fiscal deficit in its budget, it would be recalled that the 8th National Assembly, after a seven-month delay, increased the 2018 budget by 6 percent to a record N9.12 trillion from the N8.612 trillion presented by the President.

For the past four years since 2016, Nigeria has never met a revenue target specified in its budget due to fiscal expansion and so funds a larger part of it by borrowing externally. Ologunro explained that in order to avert this brewing fiscal crisis, government will have to fashion out ways to expand revenues, particularly from non-oil sources, or embark on fiscal consolidation to improve fiscal buffers

In the 2018 budget proposal, the Buhari-led executive projected revenue of N7.16 trillion but could only achieve N4 trillion within the period, according to data obtained from the Central Bank of Nigeria’s quarterly report. This represents a shortfall of N3.16 trillion.

With total debt standing at N24.4 trillion as at 31 December, 2018, Nigeria would take about six years to offset its debt supposing it wants to pay from its current revenue stream. Nigeria currently has an interest payment to revenue of 61 percent.

Amid the problem of a shortfall in revenue, Nigeria has overtime drafted the macro-economic indicators in the budget in such a way that they are wide off the mark from realities.

For instance, the budget assumed oil projections at 2.3 million barrel per day even though crude oil production has averaged about 1.9 million barrel in the larger part of the year.

Similarly, it pegged the exchange rate at N305/$1 instead of the official market-determined rate of N360/$1. Inflation rate was also projected at double digit even though in reality it has averaged around 11.2 percent since the start of the year. Its projected GDP growth rate of 3 percent is much higher than the IMF forecast of 2.1 percent.

However, Brent crude price staying around $70 per barrel could put the oil-dependent country on a strong footing. Higher crude prices and plans to sell stakes in joint ventures with international oil companies could boost income and reduce a shortfall that has seen the government of Africa’s most-populous nation borrow more to meet its obligations. A 67 percent increase in minimum wage, together with a reluctance to cut fuel subsidies and raise consumption taxes, could see the gap widen further.